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CMA Final · Corporate and Economic Laws · Corporate Governance and Social Responsibility and Sustainability

Which statement is correct about the CSR spending obligation under section 135(5) of the Companies Act, 2013?

The Board must ensure the company spends in every financial year at least two per cent of the average net profits of the three immediately preceding financial years. Net profit for this purpose is calculated in accordance with section 198, and preference is given to the local area.

  1. AThe company must spend at least two per cent of its net profit of the immediately preceding financial year only
  2. BThe company must spend at least two per cent of the average net profits of the three immediately preceding financial years, with net profit calculated under section 198Correct
  3. CThe company must spend at least five per cent of the average net profits of the last two financial years
  4. DThe company must spend two per cent of average turnover of the three preceding financial years

Explanation

Section 135(5) fixes the minimum at two per cent of the average net profits made during the three immediately preceding financial years, and the Explanation says net profit is calculated in accordance with section 198. The other options use the wrong base, period or rate.

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